UCC 3 Negotiable Instruments Flashcards
1
Q
Governing Law
A
- Negotiable instruments are governed by Article 3 of the Uniform Commercial Code (UCC), which is codified in Florida Statutes.
- Negotiable instruments are signed writings that demand that another pay or promise to pay money.
- The term “negotiability” refers to the rights and obligations of those involved with the commercial transaction which involves the negotiable instrument.
2
Q
Negotiable Instruments
A
Negotiable instruments are used to transfer value, are freely transferable, and require—
- unconditional promise; OR
- order to pay;
- fixed amount with or without interest or other charges;
- payable only in money (not goods/services);
- be a signed writing; and
- payable to order or to bearer.
3
Q
Payable to Bearer
A
An instrument is considered payable to bearer if it’s—
- blank;
- payable to the one who possesses it;
- pay to the order of cash; or
- not payable to an identifiable person.
4
Q
Payable to Joint Payees
A
If the instrument is payable to joint payees:
- if payable as X “and” Y, then both must sign to negotiate the instrument;
- if it is payable to X “or” Y, then either can sign;
- if it is payable to X “and/or” Y then it is deemed to be payable as “or.”
5
Q
Holder
A
A holder is—
- a person in possession of the instrument or who has rights; or
- if the instrument is properly transferred, the transferee is a holder.
6
Q
Holder in Due Course (HDC)
A
- A holder in due course is a holder who took the instrument for value, in good faith, and without notice of any claims or defenses to it—i.e. without knowledge that it is overdue, dishonored, or subject to a defense or claim.
- Good faith requires honesty in fact and the observance of reasonably commercial standards of fair dealing.
- Holder in due course status is determined as of the time the instrument is negotiated and value is given.
- For value to be given, the instrument must have been given for the promise of performance; an unperformed performance is not value.
- In the absence of any real defenses to payment, the instrument must be paid to a holder in due course.
7
Q
Personal Defenses to Enforcement
A
- A holder in due course does not take a negotiable instrument subject to personal defenses, being—
- lack of consideration;
- waiver;
- estoppel;
- unconscionability, and
- fraud in the inducement (know what are signing, just fraud to get to sign).
- The holder in due course takes the instrument free of these defenses.
8
Q
Real Defenses to Enforcement
A
- A holder in due course is subject to real defenses, being—
- material alteration,
- duress,
- fraud in the factum,
- insolvency,
- infancy,
- incapacity, and
- illegality.
- If these defenses exist, the holder in due course does not have the right to enforce the instrument.
9
Q
Fraud in the Factum
A
Fraud in the factum exists as a defense if the maker had no knowledge or opportunity to learn of instrument’s character, or its essential terms. He did not know what he was signing.
10
Q
The Shelter Rule:
Transferee Rights
A
Under the shelter rule, a transferee has the same rights as the holder in due course transferor to enforce the note, provided the transferee takes without notice of any claims or defenses.
11
Q
Parties to Negotiable Instruments
A
- A drawer is one who—
- signs a check and
- orders another to pay the check.
- A drawer does not have primary liability to the payee unless the draft is not paid by drawee.
- A drawee/payor is the one who pays the check and is usually a bank.
- An acceptor is the drawee who “accepts” the draft by promising, before it is due, to pay on the instrument when it comes due.
- A payee is the person to whom the check is payable.
- An indorser is one who signs the back of negotiable instruments.
- Anyone who indorses the back of an instrument is liable for payment on it.
12
Q
Accommodation Party
A
- An accommodation party can be a maker, drawer, acceptor, or indorser, depending on the capacity in which the party is signing.
- An accommodation party guarantees payment on behalf of a third party and is obligated to pay if the original drawer or maker does not pay.
- Ordinarily a party cannot assert a third party’s defenses; however, an accommodation party can assert any defenses that the original drawer or maker has to payment on the instrument (such as induced by misrepresentation).
- Absent defense, the accommodation party is liable even if he did not receive consideration for his indorsement.
13
Q
Blank Indorsement
A
- A blank indorsement is one that—
- just contains the payee’s name;
- which makes the instrument a bearer instrument;
- which can be negotiated simply by delivery.
- Anyone in possession of a blank indorsement instrument can negotiate and enforce the instrument.
14
Q
Discharge of Indorser
A
- For an instrument to be paid, it must be presented for payment.
- Presentment must occur on or after the date specified in the instrument.
- If no date is specified, the instrument must be presented within a reasonable time after the person to be charged becomes liable on the instrument.
- An indorser is one who signs the back of negotiable instruments.
- Anyone who indorses the back of an instrument is liable for payment on it.
- An indorser is discharged 30 days after indorsement if the instrument has not been presented or deposited within that time.
15
Q
Dishonor
A
An instrument is dishonored when proper presentment for payment is made and payment is refused.
- In order for the dishonor to be valid, notice of dishonor must be given in any commercially reasonable manner.
- Once notice of dishonor has been given or excused, the indorser is liable to the person who is entitled to enforce the instrument.
